The Kohala Hydropower Project hit another snag when Chinese financiers stated that they will give the necessary financing once the Rs350 billion backlog of unpaid payments owed to independent power producers (IPPs) under the China-Pakistan Economic Corridor (CPEC) is resolved.
“This new financing condition has virtually stalled the project,” a senior Energy Ministry source revealed, adding that the project’s average 30-year tariff is anticipated to be 7.85 cents per unit, with a total project cost of $2.4 billion.
“The Kohala project will be located in Azad Jammu and Kashmir on the Jhelum River.” (AJK). The Kohala Hydropower Company will collaborate with China Three Gorges Corporation (CTG), the World Bank’s International Finance Corporation, and the Silk Road Fund to create it.
According to the official, an Rs50 billion revolving fund has been formed to assure smooth payments to Chinese IPPs rather than under the canopy of CPEC, although Chinese feedback on whether they are satisfied with it is still needed.
“The project’s financial closure has not yet been achieved.” Against such circumstances, completion of the project in June 2026 does not appear feasible. Pakistan is a cash-strapped country that is currently in a major US dollar liquidity crisis, making it impossible to pay CPEC IPP dues,” he noted.
According to the source, the Chinese power producers have not yet used the sovereign assurances granted by the Government of Pakistan.
This project is managed by the Private Power & Infrastructure Board (PPIB). Shah Jahan Mirza, Managing Director of the PPIB, revealed that Chinese state-owned banks and Sinosure (China Export & Credit Insurance Corporation) had resisted providing finance for the Kohala Hydropower Project.
However, he ascribed the reluctance to the country’s risk factor, which has increased significantly since global rating agencies eliminated Pakistan’s credit rating due to the country’s terrible economic circumstances.
Furthermore, Mirza did not respond to the query about Chinese banks and insurance organisations connecting financing to CPEC IPP dues clearance.
The project was approved by the Economic Coordination Committee (ECC) on June 28, 2020, and a tripartite power purchase agreement was formally signed on June 25, 2020, between the Kohala Hydropower Company and the governments of Pakistan and AJK.
In addition, in April 2021, the Implementation Agreement, Sovereign Guarantee Agreement, and Water Use Agreement were inked.
On April 8, 2020, the ECC also allowed a 7% foreign exchange loss/gain to be absorbed by Kohala Hydropower Company, as well as a 2% delay in payment without compounding, which was accepted by the Chinese companies.